Making Work Pay: Should You Hire Contractors Or Employees?

The tight economy has firms everywhere reassessing their labor cost structure, laying off or terminating poorly-performing employees, and shedding older, less-productive workers via attrition and early retirement. To replace higher-cost employees who have departed for one reason or another, it has become common practice to hire independent contractors on a per-project or fixed-term basis. The employer-contractor relationship confers a number of benefits on both parties, including substantially reduced overhead costs for employers, but it presents some risks as well.

Benefits of Hiring Contractors

In case you are not up on your human resources lingo, an independent contractor is someone who performs a service for an employer on a contractual basis. The benefits of hiring independent contractors include:

No need to provide benefits: When you hire an independent contractor, you agree to a set fee for their services and then let them get to work. They are responsible for obtaining their own insurance and paying their own taxes. Even if you’re paying them at the same rate as your full-time employees, this substantially reduces your labor costs and alleviates pressure on your human resources department.

Greater experience: What’s more, in contrast to fresh new hires, contractors often have years of experience under their belt and can offer technical expertise in specific areas that your regular employees fall short in. This makes hiring independent contractors ideal if you have a project that demands someone with a specific area of expertise, but you don’t require their services in the long run: you can simply hire them for the duration of the project.

Benefits of Hiring Regular Employees

Much-maligned traditional employees still offer a number of benefits that simply aren’t available from a freelancer. These include:

Flexibility: As your business grows, you will need helpers with a range of talents and a knack for multi-tasking. Job titles often are not set in stone at small and medium-sized businesses.

Loyalty: Permanent employees have a stake in your business in a way that independent contractors, for all their good intentions, can’t and don’t. Your successes are their successes and vice versa.

Stable demands: Even happy employees will occasionally demand perks like extra days off, a pay increase, or an improved benefits package, but they won’t change the rules without asking. Independent contractors can raise their asking rate suddenly and miss deadlines with impunity because they’re working simultaneously for other organizations.

Talent pools: While contractors who produce excellent work often receive offers to work permanently at client firms, there is no substitute for homegrown talent. As your business grows, employees who start at the bottom and prove their worth will drive its success.

Deciding whether to hire a full-time employee or piece together your growing workload with a network of contractors can be tough. Both options offer considerable advantages, but they have potential pitfalls as well. In the end, you will need to assess the specific needs of your business and determine whether you want to use the freelance market to lower your overhead costs or invest long-term in the strength of your business with traditional hires.

Darlene Atkins blogs about business hiring decisions, including the pros and cons of hiring contractors. If you are interested in a career as an independent contractor, you might consider enrolling in an online MBA course to boost your skills and marketability. Several schools offer online MBA programs, including Northeastern University and Brown University.

This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.